Labor Unrest at the Maruti Suzuki India Plant in Manesar

Posted by Written by Melissa Cyrill Reading Time: 6 minutes

A troubled history of labor unrest at the Maruti Suzuki India (MSI) factory in the industrial town of Manesar has damaged the region’s reputation as an investment destination. The Gurgaon – Manesar belt in the state of Haryana is a premier manufacturing area in North India, and is the country’s largest manufacturer of automobiles. Yet, recent labor unrest has caused manufacturing managers to muscle up their HR and security practices, forcing workers and labor unions to be more direct.

A comprehensive review of the region’s labor unrest shows that mismanagement and miscommunication are the leading causes of these highly damaging and preventable incidents. Businesses that understand local conditions, comply with regulations, and adopt best practices significantly reduce the potential for labor troubles and increase the productivity of their workforce.

Leader in the Indian auto market

Maruti Suzuki has been India’s largest carmaker since its launch in 1983. It has two manufacturing bases in India. A third upcoming plant will be located in Gujarat, and owned by the Japanese parent company Suzuki Motor Corporation (SMC). Gurgaon houses three fully integrated manufacturing plants spread across 300 acres.

The second facility, established in Manesar, became operational in 2007, and is spread across 600 acres. During April to July in 2015, Maruti Suzuki India secured its highest market share since 2001 reaching 47.5 percent. Maruti’s performance is a remarkable turnaround from an all-time low of 38.3 percent in 2011-2012, during the peak of labor strife at the company’s plant in Manesar.

The implications of the 2011-2012 violent labor unrest are tied into the managerial, political, demographic, and legal aspects of industrial relations in the country. The labor disturbances provide important lessons for manufacturing firms and investors.

Why the continuing labor unrest?

Industrial relations

The factory regime in the Maruti Suzuki India plants underpin the state of industrial relations in the company. Workers perceive the management as distant and unresponsive, seeking only to obstruct their demands. Managers have been disinclined to negotiate with striking workers and union leaders, who are viewed as troublemakers and opportunists. Further, the management often hires muscle men as employees to check and inform on potential labor unrest. This has cumulatively contributed to a growing climate of discontent and mutual suspicion, causing repeated labor strife and strengthening a militant labor unionism. Since most of the workers belong to the same castes, are locals, and train at the same industrial training institutes, they function and rebel as a cohort.

In addition, the introduction of a Japanese work culture by the management – including constant cost reductions, a grueling work ethic, unyielding deadlines, unpaid overtime, and an oppressive ‘culture of rules’ – has exacerbated  discontent among workers. This plays out on the wage front as well. According to experts, workers’ anger stems from how increasing revenues and profits of MSI are distributed among the management as opposed to the workers, despite the rapid increase in production and longer work hours. While most automakers have been struggling to increase sales, Maruti Suzuki has captured a 14-year-high share in the domestic segment.

The recurrent labor strife at the Maruti plants thus illustrate the importance of better industrial relations. The lesson for the upper management is clear; they need to increase their involvement at the floor-level with the workers. A transparent feedback system, grievance redressal, and open communication between representatives of workers and HR executives can bridge mistrust, check friction, and enable faster resolution of live conflicts. Management training should include the study of the nature of work performed, familiarity with the workers and their ascribed roles, their social structure, prior history of union activities, the study of resolutions and decisions taken in the past, and the comparison of facilities given to the worker vis-à-vis the workers of competitors.  This information allows managers to anticipate, understand worker grievances, navigate solutions in context, and mitigate potential sources of conflict.

Contract labor

One of the main triggers of the labor unrest at the MSI plants has been the uptake in the use of contractual labor as opposed to hiring permanent workers. This has been reflective of a wider trend in the organized private sector (chemical, textile and garments, cement, mining, and automobile industries) where estimates placed the employment of contractual labor at between 25 to 30 percent of total employment. Discontent emerges from the fact that contract employees do work that is of a permanent nature, as pointed out by a Supreme Court ruling in 2011. Further, they do not receive social benefits and are paid lesser than their permanent counterparts.

Since 2013, MSI management has also pursued an active policy of recruiting temporary workers (temps). Temps are hired on seven month contracts, constituting a new category of workers, whose contracts may or may not be renewed. Maruti has set an aim of hiring 70 percent permanent workers and 30 percent temps. According to MSI Chairman R.C. Bhargava, the company employed about 19,000 workers in 2014 – 12,500 were regular, 6500 were temporary, and 1100 were apprentices. The policy of hiring temporary workers has been directed towards phasing out the contractual system and provides a buffer against future union strife. Nevertheless, the massive employment of temps is problematic given the short duration of work experience and lack of job security. Further, since the temporary workers do work that overlap with permanent roles, the present peace could give way to renewed strife, causing further reputational damage and loss of revenue to MSI.

Labor laws

India’s labor laws have been criticized for their complexity, lack of modernization, inflexibility, and poor implementation. India’s federal form of government implies that labor matters come under the jurisdiction of both federal and state governments. Currently, India has approximately 200 labor laws, of which 52 are federal acts. Though labor laws at both levels seek to protect workers, in practice, they cover only a minority of workers, and many do not get implemented. For instance, Dr. Sanjay Upadhyaya, faculty at the V.V. Giri National Labour Institute, points out that the labor law mandates that any company employing contractual labor needs to obtain a license from the labor department; this license can be cancelled if the rights of the contract laborers are abused, which rarely happens.                                                                               

The eruption of violence at the MSI plants are indicative of a structural weakness in the framework of Indian labor laws and sluggish dispute settlement mechanisms. Rigid rules on hiring and layoffs harm the formal sector and discourage investment, which in turn impedes the growth of employment in manufacturing.  Given the Prime Minister’s Make in India initiative, India will need to address labor law reforms to ensure a balance is achieved between protection and flexibility, and that laws are made responsive to changes in the market situation.

Background

The 2012 riots at the MSI plant in Manesar were the most notable incident of labor unrest in recent years. The trajectory of the unrest is traced back to multiple strikes in 2011 before a tripartite agreement was signed between the management, workers, and the Haryana government representatives. However, on July 18, 2012, a mob of angry workers stormed into the plant, halted production, and proceeded to beat members of management – all in reaction to the suspension of a worker over alleged misconduct towards his supervisor after the latter reportedly made a casteist remark. The resulting violence – considered the worst in the company’s history – burnt an entire management block, injuring 100 managers, and causing the death of the company’s HR head. The episode was caused by tensions, which built up due to rumors and miscommunication.

The police, in its First Information Report (FIR), claimed that the labor riot was orchestrated by a section of workers and union leaders, and arrested 91 people. Subsequently, the Manesar plant was shut down under The Industrial Disputes Act, 1947 pending results of an inquiry.  This led to losses of about US $18 million per day for MSI. The company reopened production at a reduced capacity on August 21 and dismissed 500 workers who had been implicated in the violence.

The Maruti riots remain an influence on labor unrest and union action to this day. For instance, seven major labor ignited incidents of violence have occurred in the last half decade, including three in 2014, at Gurgaon based garment export houses. In the past two years, MSI workers and unions have repeatedly called for strikes in protest of the mass jailing and dismissal of their colleagues over the 2012 riots. Moreover, a nearly identical scenario to the one at MSI has played out in the Honda Motorcycle and Scooter India, Private Limited (HMSI) plant in Rajasthan that led to massive worker protests, ongoing since February 16 this year. Altogether, such incidents have instigated a conscious change in HR policy – favoring the hiring of temps from across the country – to ensure regular labor turnover and a lack of unionization. It remains to be seen if this practice is sustainable.

Another major reason for the recurrent strife at the MSI plants has been over the wage expectations of the workers. After several bouts of unrest over the past decade, the three labor unions (Gurgaon, Manesar, and Suzuki Powertrain) conducted six months of peaceful negotiations with company management in 2015. A wage settlement was reached in September, providing permanent employees a wage hike of about 38 percent over three years, setting an industry benchmark in the process. This led to unrest among temporary workers, and finally, in October 2015, MSI hiked the wages of all its temps, by about 10 percent a month.


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India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for business support in India.